1. First of all why don’t we take the rest of the money for the FCIC (“Financial Crisis Inquiry Commission”) and just give it to Jenner & Block to keep investigating and writing? Their 9 volume study of what went wrong at the NY Fed and Lehman is our crisis’ Pecora Commission. People should be reading this and getting pissed off.

James Kwak has an overview. Like Ryan Chittum, I’m amazed at how well the blogosphere is covering it and the mainstream media is not.

2. One thing that I’m finding surprising is that the President and the Treasury Secretary aren’t out there beating the hell out of this story. For financial reformers, this report should be like a “Get 2 Free Financial Reforms” monopoly-style card falling out of the sky. Why isn’t the administration thumping the hell out of this story?

I remember when Anthem Blue Cross Blue Shield decided to raise rates 39% in the middle of a recession and Obama immediately got on the point that this is exactly why we need comprehensive health care reform. I remember thinking at the time “If a giant scandal blows up in the financial sector, I bet he’ll go equally as hard as to why this proves we need comprehensive financial reform.”

Oddly, that isn’t happening. Senator Ted Kaufman is giving a speech today about how this fraud calls for tougher regulation, which is fantastic. Why isn’t the administration?

3. I’ll go ahead and ask: Is Geithner implicitly recusing himself? Is he a material witness here? Why isn’t he out there screaming at every reporter and Sunday morning talking show he can find “see, this is exactly why we need to pass a strong bill”!? How much does his oversight of the NY Fed compromise him from using this scandal as a means to explain to ordinary Americans how dysfunctional and corrupt the culture of Wall Street has gotten? Randall Wray explores how much Geithner knew and what he did. Given the scrutiny, it makes perfect sense for Geithner to keep his mouth shut on this, even though this is the perfect moment in financial reform for him to yell from the rooftops about this.

The problems at Lehman raise even larger questions about the vigilance of the S.E.C. and Fed in overseeing the other Wall Street banks as well…There’s a lot riding on the government’s oversight of these accounting shenanigans. If Lehman Brothers executives are sued civilly or prosecuted criminally, they may actually have a powerful defense: a raft of government officials from the S.E.C. and Fed vetted virtually everything they did.

Yup, a pretty powerful defense. And this is at exactly the moment when the Dodd bill drops asking for citizens to give even more financial reform powers to the Fed, with standards to be determined internally. That’s not encouraging.

4. Naked capitalism has been killing it with their coverage. Frank Partnoy gets to the economics valuation part, different than the Repo 105 part, where the thought that “Lehman used LOWER discount rates for the riskier tranches than for the safer ones” makes me want to take a nap it is so depressing. This is what valuation looks like outside of exchanges.

5. Here’s Partnoy’s MMBM Presentation. The conclusion: “In sum, Congress should mandate that companies report all of their assets and liabilities. Companies that omit material assets and liabilities from their balance sheets should be subject to civil liability in the same way companies generally have been exposed to private rights of action for material misstatements. This is not a radical proposition: it is precisely what Congress did in 1933 and 1934, in response to that era’s financial crisis.”

I always love it when financial reformers have to go “this isn’t really radically. In fact, if it wasn’t so arcane, you would consider it common sense.” Sunlight, and all that. Tends to work.

After March 2008 when the SEC and FRBNY began onsite daily monitoring of Lehman, the SEC deferred to the FRBNY to devise more rigorous stress‐testing scenarios to test Lehman’s ability to withstand a run or potential run on the bank. The FRBNY developed two new stress scenarios: “Bear Stearns” and “Bear Stearns Light.” Lehman failed both tests. The FRBNY then developed a new set of assumptions for an additional round of stress tests, which Lehman also failed. However, Lehman ran stress tests of its own, modeled on similar assumptions, and passed. It does not appear that any agency required any action of Lehman in response to the results of the stress testing.

That is stunning. Almost all of my adult life I’ve been involved in doing math modeling for stress tests for some firm or another, financial and insurance firms for the second half, and I am outraged that this happened. It makes me sick, honestly.

No judgements, but there has to be another stress test of the largest 6 firms, with a special stress on their second liens. There is no credible way we can trust the past results. Our best option is to make sure that the results are consistent with projections from last year. There are millions of homeowners and thousand of bondholders who want to negotiate contracts, and the valuations of the second-liens are crucial to helping America move on from the housing bubble and start rebuilding our country and real economy.

“One thing that I’m finding surprising is that the President and the Treasury Secretary aren’t out there beating the hell out of this story.”

Really? It is actually extremely obvious. The current Treasury Secretary was the president of the FRBNY when all this was going on, and he was either completely oblivious to this fraud, or he intentionally turned a blind eye to it. (My money is on the latter). Why in the hell would you expect him to make a big deal out of this story? As for the President, well… it now appears his pick to run the Treasury is in the pocket of the major NY banks and let all this happen on his watch (he probably covered it up). I really don’t think Obama wants to tie his fortunes to Geithner… I guarantee you him and his staff are praying that everyone forgets all about the fact that he chose to promote Timmy.

Now is it so puzzling that the major newspapers are losing out to the blogs on this?

I can see no other explanation why Geithner and the Administration are not using the Lehman examiner report to railroad financial reform through Congress than the apparent fact that Geithner himself is knee deep in the Lehman pig wallow.

If there was ever a time for Obama to cut Geithner loose, now would be it.

“The FRBNY developed two new stress scenarios: “Bear Stearns” and “Bear Stearns Light.” Lehman failed both tests. The FRBNY then developed a new set of assumptions for an additional round of stress tests, which Lehman also failed. However, Lehman ran stress tests of its own, modeled on similar assumptions, and passed.”

This is a smoking gun of unbelievable caliber. Changing the rules because you didn’t like the outcome and then hiding the original results is the #1 thing you never, ever do if you are being even minimally honest in any kind of truth-finding inquiry.

I think by the time Geithner and company got called in, the situation was much deeper than anyone around so shortly thereafter (2 years later that is) is willing to admit. The shock might have happened in March of 2008 rather than September.

They were probably trying to figure out how deep the gash was with the CMOs (collateralized mortgage obligatons) to bother with whether Lehman was also involved in any fraud.

Hindsight is 20/20. Especially after Madoff, we now just assume fraud in everything going wrong in finance. But in 2008, many people still thought that Sarbanes was an effective control against fraud.

Now, it’s clear, you must eliminate the people who had any involvement in the fraud, and even consider the merits of the careers of those who might have brought strange things to greater attention.

This is going to be written in history as one of the disappointments of the (first) Obama Administration. (No matter when the second Obama Administration starts, if not in 2013.) He is too loyal to people whose mere presence tends to impugn his integrity as a reformer, “change we can believe in” and all that jazz.

If they really thought they were serving the President, they would skedaddle.

You are making the assumption that Anthem does not want comprehensive healthcare reform. This is a false assumption. They knew exactly what they were handing Obama when they asked for their “outrageous” premium hike in California. They are salivating over another 40 million or so “customers” coming their way. Let us not forget who has been in the backrooms negotiating this bill with Ms. Pelosi.

“Until now, my answer to the first question has been that while much of what the bankers did was reprehensible, it was perfectly legal. I still think this is the case—in finance, it is often the case that the biggest scandal is what you can get away with within the law—but the Valukas report raises the possibility that I was wrong, and that the big Wall Street firms were engaged in Enron-style accounting fraud.”